ABB Asea Brown Boveri Ltd and Others v Hiscox Dedicated Corporate Member Ltd and Others

Hearing dates: 30 th March – 2 nd April 2007

Approved Judgment

I have before me an application to amend the pleadings in two related actions. The claimants in each action are ABB Asea Brown Boveri Ltd (“ABB”) & ABB Equity Ventures Inc (“Inc”). Inc was incorporated in Delaware. ABB is the parent company of a group of companies, most of which have “Asea Brown Boveri” or “ABB” in their names. The group has a business division known as “Equity Ventures” (previously “Energy Ventures”). That division utilised a number of entities with “Energy/Equity Ventures” in their name, including Inc, and ABB Equity Ventures BV (“BV”), a company incorporated in the Netherlands.

In 2005 Folio 862 the defendants are Hiscox Dedicated Corporate Member Ltd (“Hiscox”) and 8 other underwriters (“the insurers”). The insurers between them provided cover under the Primary and Excess layers of a programme of contract frustration indemnity insurance in favour of ABB and its subsidiary and/or associated companies. The claimants claim against the insurers in relation to a project called the Korba Project in respect of the policies under the programme incepting in 1999 (“the 1999 policies”), which replaced policies incepting in 1998 (“the 1998 policies”). The insurers' defence to these claims includes the contentions (“the placement defences”) that the cover in respect of the Korba Project was never bound to the following market on the excess layers in respect of the 1998 policies, and that, in any event, it was not carried over into the 1999 policies.

In 2005 Folio 279 the defendants are Jardine Lloyd Thompson Limited (“JLT”), the brokers of the 1998 and 1999 policies. The claimants claim against them upon the basis that, if either or both of the placement defences are good, JLT were negligent.

The claimants' application is threefold:

(a) to amend Inc so as to read BV (under CPR 17.4 (1)) or to substitute BV for Inc (under CPR 19.5); and

(b) to add as claimants two further companies viz:

(1) Daewoo Power (India) Ltd (“DPIL”); and

(2) ABB Power Investments (India) Ltd (“PII”); and

(c) to amend the Particulars of Claim.

On 19 ^th April 2006 the claimants served Particulars of Claim which incorporated the substitution and addition of the parties referred to above. They issued an application for permission to effect this change on 14 ^th November 2006. They have now served draft Amended Particulars of Claim which incorporate those changes and the further amendments of the Particulars of Claim referred to above.

In order to address the issues raised by the application it is necessary to examine in some detail the somewhat complicated facts which give rise to it. The account that follows is either apparent from the base documents or derived from the Amended Particulars of Claim (“APOC”), a large proportion of which is admitted by the insurers. It should not, however, be assumed that none of it is in issue.

The ABB group of companies is engaged in engineering and construction projects all over the world. The programme of contract frustration indemnity insurance, arranged in various layers through JLT, was, so far as presently relevant, initially, in respect of losses occurring between 1 ^st January 1998 and 31 ^st December 2000. The Primary layer, subscribed as to 100% by Hiscox, was $5,000,000 first loss any one country and in the aggregate, subject to a deductible of 10% of the value of each and every loss up to $50,000. The 1 ^st Excess layer (there were five) was $40,000,000 in excess of $5,000,000 per country. The primary layer was fully reinsured by ABB Insurance, an ABB Group captive insurance company.

The 1998 policies included the following terms:

“1. ASSURED ABB Asea Brown Boveri and/or their subsidiary and/or their Associate Companies (as per appendix 1) for their respective rights and interests.

1. INSURED RISKS

PART A

The CALLING of a COUNTER-INDEMNITY by an ISSUING BANK or by a COUNTER GUARANTEEING BANK caused solely and directly by the calling of a BOND by a BUYER or a COUNTER-GUARANTEE by an ISSUING BANK and where,

1.1. the ASSURED is not in material default of its obligations under a CONTRACT …

PART B

The CALLING of a BID BOND where the ASSURED has submitted a TENDER to a BUYER and where:

1.7. Capricious Call

The ASSURED has neither failed nor refused to enter into a CONTRACT with a BUYER in accordance with the terms and conditions set out in the said TENDER where the ASSURED has not given any indication of any failure or refusal to enter into a CONTRACT with a BUYER…”.

The policies included a number of definitions:

“3.6. COUNTER INDEMNITY

A binding agreement issued by the ASSURED or by a THIRD PARTY to pay to an ISSUING BANK or a COUNTER GUARANTEEING BANK in case of a CALLING of a BOND

3.7. COUNTER GUARANTEE

A binding agreement issued by a COUNTER GUARANTEEING BANK to pay an ISSUING BANK in case of a CALLING OF a BOND

3.8. BOND

Any guarantee, BOND or other payment undertaking however named or described by a bank, insurance company or other body or person issued in relation to a contract or a tender (BID BOND) in writing for the payment of money on presentation in conformity with the terms of the undertaking of a written demand for payment and such documents as may be specified in the BOND and where the duty of the issuer is not conditional on actual default of the ASSURED”

3.9. BID BOND

A guarantee issued by either the ASSURED and/or an ISSUING BANK and/or an insurance company in respect of a TENDER

3.10 ISSUING BANK

An entity which has issued a BOND in favour of a BUYER in relation to a CONTRACT or a TENDER

3.11 COUNTER GUARANTEEING BANK

An entity that has issued a COUNTER GUARANTEE in favour of an ISSUING BANK

3.17 DATE OF LOSS

A date within the POLICY PERIOD on which an INSURED RISK occurs.

3.18 CALLING

For the purposes of this Policy, the terms “calling” or “call” shall mean either

a) the actual calling of a BOND

or

b) a stated intention to call a BOND in circumstances which are advised to Underwriters hereon and which ultimately lead to a financial loss to the ASSURED for which the ASSURED is indemnified by Underwriters hereon, subject to the terms and conditions hereunder

or

c) an indirect call where the ASSURED is obliged to pay to a Third Party in accordance with subcontracting or consortium agreements…

3.19 WAITING PERIOD

The period specified in item 6 of the SCHEDULE [which was 180 days], beginning at the DATE OF LOSS.”

Appendix 1 contained, under the heading “ABB Asea Brown Boveri Bond Portfolio: Appendix 1 Participating Companies ….” a list of 18 companies and included the following paragraph:

“In all cases, admission of the above companies shall include all subsidiaries or associated companies (referred to as “contracting companies”) in which the above parent companies (referred to as “holding” or “regional” companies), directly or indirectly, have more than 50% of the voting rights or over which they exert decisive influence”.

Section 5 of the policies was headed “Mechanism of Policy Operation” and provided, inter alia, that the ASSURED should be obliged and entitled, subject to an exception, to admit to the policy for coverage any eligible BOND given to a BUYER where the ASSURED was ultimately at risk and which unconditionally permitted a BUYER or ISSUING BANK to call such BOND. Section 5.4. provided:

“Discretionary Admission of BONDS to the Policy

Subject to the Leading Underwriters' approval and—if so approved – premium rating in each case, the ASSURED may admit to the Policy for coverage:

…

b. BONDS issued by order of a subsidiary or minority owned or joint venture or associate company of the [ABB] Group of Companies or by order of a company acting as agent for an [ABB Group Company] where the ASSURED has issued a counter-indemnity and is ultimately at risk …”

Section 6 of the policies included definitions of the amount of loss:

“6.1. AMOUNT OF LOSS for Tender, Performance, Retention and Warranty Bonds

Where loss occurs in respect of Tender, Performance, Retention or Warranty BONDS, the AMOUNT OF LOSS is calculated as the sum paid by the ASSURED under the COUNTER INDEMNITY less all recoveries and only up to the MAXIMUM LIABILTY

6.6. Settlement of Claim

Underwriters will pay to the ASSURED the INSURED PERCENTAGE of the AMOUNT OF LOSS as soon as practicable after the AMOUNT OF LOSS has been calculated. The AMOUNT OF LOSS will not be calculated until after the respective WAITING PERIOD is completed”

In essence, so far as presently relevant, the policies contemplated that a Bond would be provided by way of performance guarantee in respect of either a concluded contract or a tender. The Bond (called in the case of a Tender a Bid Bond) would be provided by a Bank; the Assured would provide a counter indemnity to the Bank, and the amount of loss – see clause 6.1—would be...